Tuesday, July 29, 2008

Culture for Capitalism

If New York is the city that never sleeps, then Shanghai doesn’t even sit down, and it’s not because there’s no room. The city is explosive in the way it moves; the people, the vehicles, the ideas. Go to Shanghai today and return two months later and the skyline will be more powerful and intimidating, there may be a new bridge linking Pudong and Huangpu, and chances are the city will be pulsating with even more vivacious people than the time before. A link between Eastern and Western, traditional and modern, Shanghai is known as the “Pearl of the Orient,” as anybody walking the eclectic streets can feel the transformation of both the tangible and the intangible taking place on the Eastern coast of China. After the death of Chairman Mao Zedong in 1976, the Communist phrase, “Look to the Future” (“Xiang Qian Kan”), became transformed into “Look to the Money,” because the words for “future” and “money” sound the same but are written differently in Mandarin. The craze for wealth and power are on the minds of each of the 20 million people living in Shanghai, specifically the young, zealous nationalist crowd that is molding Shanghai into a hotbed for both politics and commerce.

It is somewhat recent that students and 20-somethings have become so heavily involved in business and politics in China. Their greed for knowledge and flair for competition has turned this involvement into a race for wealth and power within the growing circle of metropolitan youth. In 2003-2004, there were over 61,000 Chinese students studying at institutions of higher education in America, and there are approximately twice that many studying in Britain alone. The flow of Chinese students into America highlights the ambition of these scholars; they often take their education from the States and return to China where the opportunities for educated, bilingual capitalists are infinite. The exponential growth of skilled laborers and professionals concentrating in cities such as Shanghai is the catalyst for its momentum. There are approximately 120 architecture/urban development joint ventures in China and more than 140 companies among the top 200 architecture firms in the world have set up offices here. Symbols of new-fangled Chinese power such as the Oriental Pearl Tower and Jin Mao Tower loom in the haze of the uber-modern Financial District of Pudong, on the east side of the Huangpu River. There are scores of modern buildings sprouting throughout Shanghai; many of the city’s most traditional places such as the 400 year-old Yuyuan Garden in Old Town are being washed away in a fervent urge to expand and develop the city. And it’s not just Shanghai that is on this trend of exchanging culture for capitalism -- there are over sixty cities throughout China that have over one million people living in them. Officials in Beijing predict that in the next two decades over 300 million Chinese will move to urban areas, thus challenging urban infrastructure and job creation. Watching a city like Shanghai take in hoardes of people and revolutionize the concept of a modern city, it makes me wonder how long the inevitable will take before other locales follow in Shanghai's steps. Of course, the most intriguing part is watching such cities mold some personality of its own as well.

Thursday, July 24, 2008

China's Government and Media

In China, corporations are continuing to turn toward capitalism in an effort to be as least politically influenced as possible. Taxes on businesses in China (excluding Hong Kong and Macau) are often as high as 40%, with virtually no room for leeway such as tax cuts or shelters, making businesses eager to release themselves from the hawk-like eye in Beijing. From the largest Chinese corporations to the smallest start-ups, both executives and investors are encouraging free-market trends similar to those of the world’s richest and most developed nations. Large foreign private-equity groups such as Blackstone, Carlyle Group, and Warburg Pincus have become hesitant in recent months to pour more money into China, in the fears that its historically strict regulation on enterprises will not ease. And they have the right to be cautious, because the latest revelation comes courtesy of the media, one of China’s fastest growing and potentially-profitable sectors.

China is home to the world's largest population of Internet users, and there's reason to believe they will want to use the Internet in ways similar to their Western peers. So as the popularity of video-sharing sites like YouTube has exploded in the U.S., China has seen a slew of look-alikes pop up. Meanwhile, Google's $1.7 billion acquisition of YouTube in October 2006 lit a fire under the sector in China. That in turn spurred an influx of foreign venture capital -- close to $300 million committed to eight online video sites alone since 2006. However, the government regulation for what appears on the screens of the locals is very restrictive in the effort to disseminate state propaganda – sex, slander, violence, and perhaps most of all, political information – has restricted the Chinese from advancing to be as mature and informed as their Japanese neighbors, for example. Beijing has softened somewhat recently, providing a wide range of broadband infrastructure available throughout the country, transforming online video from a niche application to a mass market. The expansion for internet seems endless, with slightly more than 17% of China’s entire population [1.3 billion] even connected to the Web. However, the preventive effort in Beijing still frightens investors with dollar-denominated funds – many are looking to other sectors of China’s booming economy such as pharmaceuticals, mining, and urban development companies in the hopes of hitting the bull’s-eye. Of course there will continue to be billions invested into Chinese media for decades to come, but investors must be wary of government’s sensitive censorship role and how much longer it will last.

Monday, July 21, 2008

Player of the Month


July’s Player of the Month is Chris Freund, 36, the founder and Chief Executive Officer of Mekong Capital, the first private-equity firm to be headquartered in Vietnam. Mr. Freund is a pioneer in the business of capital management in Vietnam, a country whose past has been plagued by incessant inflation, poor working capital, and decades of strict communism. However, today Vietnam is one of the countries leading the way in Asia with cheap labor, a talented workforce, and very strong growth. Vietnam’s economy grew 24% in 2007 and is up over 20% for the year so far, which is booming since its stock market opened in 2000. The run in Vietnam’s economy has allowed players like Mr. Freund to benefit from Vietnam’s numerous enterprises with strong balance sheets and good management by injecting capital in the business in the hopes of taking it public within a period of time.

Known for his knack for risk-taking, Mr. Freund is a veteran in the sphere of Asia’s private-equity circle. He has been in Vietnam since 1995 when he arrived to build a new Vietnam fund for Franklin Templeton Investments. In 1997 the Asian Market Crisis sent Mr. Freund back to Singapore; however he didn’t sit out for long and has been running Mekong since 2001. Mekong is currently in control of three different funds, totaling over $160 million, and has taken majority stakes in some of Vietnam’s most profitable businesses. Since 2006, private-equity funds and venture capitalists have pumped roughly $386 million into Vietnam, which is small by global standards, but huge for the country and its relatively underprivileged inhabitants.

When I contacted Mr. Freund, I received worthy and inspiring advice; he told me to follow my heart, take risks, but most of all never give up. This meant a lot coming from someone who is revolutionizing business in Asia, fuelling the Vietnamese economy with his capital and management skills, and has certainly taken risks to get here. Mr. Freund was inspired by the potential in Vietnam when he visited on a trip from India, where he was studying abroad as a college student at UC Santa Cruz. Since then, Mr. Freund has been thrown a few curve balls in Vietnam such as corrupt accounting practices and steady inflation, however his composure allows him to come to grips with the fact that good things take time.

Find out more about Mr. Freund and Mekong Capital by visiting their website: http://www.mekongcapital.com/